PacWest Bancorp Shares Fall Along With Other US Regional Banks

Jimmy Aki
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Premarket trading on Thursday saw a decline in U.S. regional banks’ shares, led by a 52.5% drop in PacWest Bancorp due to its announcement of considering strategic options.

This news has prompted concerns about a potential banking crisis in the market, despite Federal Reserve Chairman Jerome Powell stating just hours earlier that the industry is sound and resilient.

A Bleak Sign for the Regional Banks

PacWest Bancorp has become the latest target of investor worry regarding the soundness of U.S. regional banks.

This bleak feeling arose after the bank lost more than half its value just hours after Federal Reserve Chair Jerome Powell stated that authorities were getting closer to taming the unrest that has claimed four lenders this year.

PacWest shares plunged by 52%, and Western Alliance shares lost 23% despite attempts by regulators to put a stop to the banking crisis that started with the collapse of Silicon Valley Bank (SVB) and Signature Bank in March.

PacWest 5/4/23

These declines highlight how investors are still skeptical about the soundness of regional banks.

However, some already predict this as another bank that could fail amid the American banking crisis.

Jamie McIntyre, an Australian political commentator, took to Twitter to express his opinion on the matter, citing that people should quit the banking system.

McIntyre stated, “De-bank yourself before more collapses.” He claims that banks are no longer required, implying that bank accounts may become obsolete by 2030 and that crypto and fintech mobile payments are all required.

McIntyre added that Western banks, particularly those in the United States, have outdated technology, which is why they are the first to fail.

However, PacWest Bancorp claimed that deposits have risen since March and that it is in contact with several prospective investors.

According to the bank, there have not been any unusual deposit flows following the sale of First Republic Bank and other news. It insisted that its available liquidity and cash are strong and exceed its uninsured deposits.

The banks also added that several prospective partners and investors have recently contacted them, and talks are ongoing. Therefore, the company will continue to explore all options to maximize shareholder value.

So far, large US banks have escaped the turmoil, and the Fed has declared the financial system stable.

However, PacWest’s collapse might pressure policymakers to support smaller lenders, who have had trouble coping with the most aggressive campaign of monetary tightening since the 1980s.

Bill Ackman, a billionaire hedge fund manager, and Robert Kaplan, a former president of the Federal Reserve Bank of Dallas, are two financial giants who have warned of impending banking difficulties.

Ackman, the CEO of Pershing Square, stated on Twitter that “banking is a game of confidence.”

He added that no regional bank could withstand bad news or negative data at this rate since insured and uninsured deposits are withheld, and stock prices plummet.

Furthermore, pursuing strategic alternatives entails an FDIC shutdown over the upcoming weekend.

Mounting Pressure on the Government

On Wednesday, the Federal Reserve raised the interest rates by 25 basis points, and Jerome Powell, the chairman, hinted that this could be the final rate hike.

However, he left the door open for officials to keep raising borrowing costs if inflation stays sticky. Additionally, he strongly disagreed with market predictions that the Fed would cut rates by year’s end.

Powell stated that the Fed was devoted to learning the lessons from this episode and working to prevent similar events from occurring again.

However, his claim that circumstances in the banking industry have broadly improved since early March has drawn sarcastic comments from those on the crypto Twitter platform.

Will Clemente, the founder of the digital asset monitoring company Reflexivity Research, also expressed his opinion in a tweet to his thousands of followers.

He stated sarcastically that the failure of five banks – Silvergate, SVB, Signature, First Republic, and PacWest – appears to be a very sound and resilient banking system.

A year of interest-rate increases has led to an estimated $1.84 trillion in unrealized losses for banks, with problems in commercial real estate compounding the suffering.

However, smaller banks, which often have fewer resources to defend themselves, are becoming more of a market focus due to these stresses.

About Jimmy Aki PRO INVESTOR

Based in the UK, Jimmy is an economic researcher with outstanding hands-on and heads-on experience in Macroeconomic finance analysis, forecasting and planning. He has honed his skills having worked cross-continental as a finance analyst, which gives him inter-cultural experience. He currently has a strong passion for regulation and macroeconomic trends as it allows him peek under the global bonnet to see how the world works.